Temporal causality between energy consumption and income in six Asian emerging countries

Abstract

This article examines the short- and long-run causal relationship between energy consumption and GDP of six emerging economies of Asia. Based on cointegration and vector error correction modeling the empirical results show that there exists a unidirectional short- and long-run causality running from energy consumption to GDP for China, a unidirectional short-run causality from output to energy consumption for India, whilst a bi-directional short-run causality for Thailand. Neutrality between energy consumption and income is found for Indonesia, Malaysia and Philippines. Following causality results India may contribute to the fight against global warming directly implementing energy conservation measures. For China, where causality runs from energy consumption to output, the country should focus on technological developments and mitigation policies. Since a bi-directional causality is found in Thailand, a balanced combination of alternative policies seems to be appropriate. Nevertheless, all the countries may initiate environmental policies aimed at decreasing energy intensity, increasing energy efficiency, developing a market for emission trading.